The Next Great Mortgage RE-Play: *AHM*

When I first shorted AHM, I noticed resistance in the $26 range, and that resistance has held twice in the past two days. I'd look for this stock to retest the $26 level on Monday, after which I suspect this stock will get hammered. Alternatively, if this stock opens AND holds below 25, it probably won't see 26 again for a very long time, if ever.

Lenders and REITs have had an amazing run the past few days, but if you're under the impression that the rally will persist, you're gravely mistaken. The recently released CPI data rules out an easing of rates in the near term, which had been the last remaining hope for many of these lenders who were looking to refinance their way back to profitability. Once the market takes note of this fact, the already battered lending sector will face additional punishment.

Unfortunately, many of these stocks are no longer available for shorting, including AHM, LEND, and NFI. Whether that changes remains to be seen, but until then, options are the alternative. Actually, the premiums on these stocks have noticeably diminished in the past few days, though they remain high nonetheless.

However, if I were trading AHM, I would play it in conjunction with movements in LEND. If LEND breaks above its Friday's high of 13.75, then I'd look for a short term top of 15.5 to 16.5, and if there's strength in one, there will be strength in the other.

AHM probably won't break 27, regardless of LEND's strength, but if it does, it won't stay there for long. I'd probably focus on the April 25 puts, and if I could get in for 2.25, I'd be happy. The April 22.50s, while riskier, could trade as low as 1.25, but getting in for less than 1.50 will be difficult.

Keep in mind that this is just my opinion and taking advice from an anonymous poster on an internet message board is as stupid as it sounds. :eek:

Could be testing its earlier lows very shortly. The remaining hurdle will be to break below 25 and hold. Should it close in $24 territory, I don't see this one reaching 26 again for some time. Time will tell...